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  • A Behavioral Model of Digital Music Piracy

    Ram D. Gopal Dept. of Operations & Information Management

    School of Business University of Connecticut

    Storrs, CT 06269 Email: ram@sba.uconn.edu

    G. Lawrence Sanders* 310A Jacobs Management Center

    State University of New York at Buffalo Buffalo, NY 14260

    Email: mgtsand@acsu.buffalo.edu

    Sudip Bhattacharjee Dept. of Operations & Information Management

    School of Business University of Connecticut

    Storrs, CT 06269 Email: sudip@sba.uconn.edu

    Manish Agrawal 310A Jacobs Management Center

    State University of New York at Buffalo Buffalo, NY 14260

    Email: magrawal@acsu.buffalo.edu

    Suzanne C. Wagner Niagara University

    Dept. of Computer Information Sciences Niagara University, NY 14109-2019

    Email: scwagner@niagara.edu

    *: Corresponding Author

    (Forthcoming in Journal of Organizational Computing and Electronic Commerce)

    Journal of Organizational Computing and Electronic Commerce

  • A Behavioral Model of Digital Music Piracy (Forthcoming in Journal of Organizational Computing and Electronic Commerce)

    2

    A Behavioral Model of Digital Music Piracy

    Abstract

    The increasing pervasiveness of the internet, broadband connections and the emergence of digital compression

    technologies have dramatically changed the face of digital music piracy. Digitally compressed music files are

    essentially a perfect public economic good, and illegal copying of these files has increasingly become rampant.

    This paper presents a study on the behavioral dynamics which impact the piracy of digital audio files, and

    provides a contrast with software piracy. Our results indicate that the general ethical model of software piracy

    is also broadly applicable to audio piracy. However, significant enough differences with software underscore

    the unique dynamics of audio piracy. Practical implications that can help the recording industry to effectively

    combat piracy, and future research directions are highlighted.

    Keywords: Digital music, Economics, Piracy, Ethics, Intellectual Property, Culture, Structural Equation

    Modeling.

  • A Behavioral Model of Digital Music Piracy (Forthcoming in Journal of Organizational Computing and Electronic Commerce)

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    A Behavioral Model of Digital Music Piracy

    1. Introduction

    Digital piracy is the illegal act of copying digital goods software, digital documents, digital audio

    (including music and voice) and digital video for any reason other than backup, without explicit permission

    from and compensation to the copyright holder (SPA 1997b). Digital media falls under the purview of

    intellectual property and illegal duplication is prohibited by the U.S. and international copyright laws and

    treaties (SPA 1997a). Despite this legal protection, digital piracy is practiced in most countries around the

    globe (Antonoff 1987; SPA 1996). For instance, the software industry is estimated to have incurred global

    revenue losses worth $11.4 billion in 19981. Contrasting this with the worldwide revenues of business-based

    PC applications of $17.2 billion, highlights the significant negative impact of piracy on the software industry.

    Audio piracy, the illegal act of copying digital sound without explicit permission from and

    compensation to the copyright holder, has recently exploded (IFPI 2000). Incentives to indulge in such

    behavior are influenced by economic, technological and ethical considerations. Key technological factors

    include the growing pervasiveness of the Internet, rapid adoption of broadband technology, write-able CD2

    technology, and the emergence of better compression technology3. This technological advancement has many

    interesting consequences.

    CDs can be created that contain over 160 compressed digital music files that can play for over 14 hours

    1 SPA's Report on Global Software Piracy(1998) http://www.spa.org/piracy/98report.htm. In January of 1999 the SPA merged with the IIA to form the Software & Information Industry Association (SIIA). The IIA represented companies involved in creating and distributing print in digital formats. 2 In the paper, reference to CD includes all recording media of high sonic quality.

  • A Behavioral Model of Digital Music Piracy (Forthcoming in Journal of Organizational Computing and Electronic Commerce)

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    on a personal computer.

    An compressed music file (e.g. encoded in MP3) can be easily transmitted over the Internet.

    Digital music can be downloaded from the Internet into a portable music player. These players can store

    several hours of digital-quality music and are smaller than a personal CD player.

    These recent technological changes have transformed, what was until recently a mostly domestic

    problem for individual countries, into an effective and effortless cross-border and trans-continental music

    piracy. Much of the audio piracy activity is via the illegal copying of compact discs and the downloading of

    audio files via the Internet. According to IFPI, a music watchdog body, the piracy of digital audio has spread

    exponentially in the past three years. The number of infringing music files available on the internet has increased

    twenty five fold in just three years, with 3 million downloads of music a day. The global music piracy market

    was estimated to be 1.9 billion units in 1999 with an estimated value of $4.1 billion4.

    Economic incentives to pirate digital audio include the high costs of purchasing legitimate copies of

    audio CDs. If piracy behavior is modeled as a utility maximizing behavior where individuals choose between

    illegal behavior that yields a positive consumer surplus, but carries the risk of punishment, and legal behavior

    that carries lower consumer surplus but no punishment, higher music purchasing cost would increase the payoff

    from piracy, ceteris paribus. Such an increase in the payoff would naturally increase the likelihood for piracy,

    leading to greater illegal behavior (Ehrlich 1973). In the domain of software piracy, such behavior has indeed

    been found, and increasing software prices are generally correlated with increased piracy behavior (Cheng

    1997, Gopal and Sanders 1997). Recently, Gopal and Sanders (2000) have reported on a significant price

    3 MP3 (Mpeg 1 Audio Layer 3), a well-known audio compression technology, uses a compression algorithm based on a complicated psycho-acoustic model to create CD quality music at a fraction (about 10%) of the file size of the original song. 4 IFPIs Music Piracy Report 2000. 1999 IFPI, http://www.ifpi.org.

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    and income effect related to software piracy rates.

    The response of the recording industry to combat the piracy phenomenon has primarily been two-

    pronged. The main emphasis has been to adopt legal measures against online sites that facilitate widespread

    audio piracy. Simultaneously, they have realized the economic potential of offering online music services and

    are working on developing technological solutions that enable the viable provision of such services while

    protecting the copyrights of the legitimate owners.

    One of the best known entities in digital audio file sharing is Napster, Inc. This free file sharing service

    was started in May 1999 to allow users to search a centralized database and then download or listen to music

    files stored on other users computers. Users could register for this service and download or listen to music

    that they did not own in any other form. In December 1999, the Recording Industry Association of America

    (RIAA) sued Napster in federal court in San Francisco alleging copyright infringements (Clark 1999). In May

    2000, the court ruled that Napster violated the Digital Millennium Copyright Act.

    As users of Napsters original service began to dwindle, Napster began moving toward legitimacy by

    negotiating distribution deals with record labels to launch an online music-subscription service (Boston 2000).

    It also began using software from Relatable LLC to create the equivalent of digital fingerprints of individual

    recordings, special files that can be used to identify and block recordings from being exchanged.

    However, this is not likely to end online music piracy. Other file-swapping systems are now expected

    to grow in popularity, including the Gnutella file-sharing system and many sorts of "instant messaging"

    approaches (Gomes 2001). Unlike Napster, these systems do not use a central database and recording

    companies would quite likely have to sue individual customers, a prospect they have tried to avoid (Ahlberg

    2000, Bravin 2000, Clark 2000).

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    Many industry experts remain critical about the long-term effectiveness of focusing on Internet piracy

    facilitators (Garber 1996; Hardie et al. 1999; Jerry 1987; Mason 1990). The concern commonly expressed

    is that the genie is now out of the bottle and that simply shutting down such servi